FIIs can buy corporate bonds directly from market

K.R. Srivats R. Srinivasan New Delhi | Updated on March 12, 2018 Published on March 23, 2013

Finance Minister P. Chidambaram said the Government would revamp investment norms to make the Indian debt market more attractive to overseas investors.


Come April 1, foreign institutional investors (FIIs) will have a more liberal access to the Indian corporate bond market.

These investors need not approach the Securities and Exchange Board of India (SEBI) and bid for allocation of limits for purchase of corporate bonds.

Currently, FIIs can purchase corporate bonds only after getting a limit allocated by SEBI through bidding (in an auction).

"The current SEBI auction mechanism allocating debt limits for corporate bonds will be replaced by an "on tap" system," said Finance Minister P. Chidambaram at the National Editors' Conference in the Capital.

Simply put, the SEBI auction system for corporate bonds will be disbanded and FIIs would be allowed to directly purchase corporate bonds from the stock exchanges without having to fork out any fees to SEBI.

Within an overall ceiling of $51 billion, FIIs could directly purchase corporate bonds from the stock exchanges or any primary issuance of corporate bonds.

As part of major rationalisation of foreign investment in G-secs and corporate bonds, Chidambaram also said the Government proposes to merge all existing sub-limits within the G-sec bucket and the corporate bond bucket and create only two broad categories.

This would mean that there will only be two baskets -- one for G-secs with an overall FII investment limit of $25 billion and the other for corporate bonds with an overall FII investment ceiling of $51 billion. All the sub-categories in these two buckets will go.

Today's announcment as regards SEBI auction is akin to removal of licensing for purchase of corporate bonds by FIIs, according to capital market experts.

"These announcements would promote inflow of portfolio investment and, thereby, facilitate infrastructure funding and bridge the current account deficit.

More importantly, this reaffirms that the Government is firmly on the reform path as it liberalises the terms of access to the Indian market and that the Indian economy is resilient," M.S.Sahoo, Secretary, Institute of Company Secretaries of India, told Business Line.

The move is spurred by the widening current account deficit, which, the Minister pointed out, can be “only financed from external resources.”

To further ease investments, Chidambaram said the limits will be reviewed when 80 per cent of the ceiling is reached in case of corporate bonds. For Government bonds, the limit will be raised based on demand, as well as economic requirements, the Finance Minister said. He added that the overall rise in the limit on foreign investments in G-Secs will be capped at 5 per cent of the annual gross borrowing limit of the Union Government excluding buybacks.

Later, in response to a query, he said that leakages in subsidies and welfare payments would be curbed to the extent of “95 per cent” once the system of direct benefits transfer is fully implemented.



Published on March 23, 2013
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